PRESENT VALUE RELATIONS, GRANGER NONCAUSALITY, AND VAR STABILITY

Luca Fanelli ()

Econometric Theory, 2007, vol. 23, issue 06, pages 1254-1260

Abstract: When in the class of exact present value (PV) relations the decision variables do not Granger cause the explanatory variables, and a vector autoregressive (VAR) process is used to derive the cross-equation restrictions, the system embodies explosive roots, which hardly can be reconciled with the typical features observed in most macroeconomic time series. This paper investigates the issue.I thank Paolo Paruolo and two anonymous referees for helpful comments and suggestions on earlier drafts of the paper. I am solely responsible for all remaining errors.

Date: 2007

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Working Paper: Present value relations, Granger non-causality and VAR stability (2006)
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